Federal Circuit says inequitable conduct can be inferred from activities in a later patent litigation?

By Alison McGreary & Ryan Cagle
October 13, 2017

Although the patent prosecution process is adversarial in nature, patent practitioners must be keenly aware of their duty to maintain the integrity of any subsequently issued patent by supplying the patent examiner with all prior art that is believed to be relevant and also avoiding any misrepresentations of the prior art.  Patent litigators have long been aware of the potential pitfall of having a patent invalidated based on inequitable conduct due to activities of a patent prosecutor carried out months or years prior to the litigation proceedings.  In light of a recent decision by the Federal Circuit in Regeneron Pharmaceuticals v. Merus, however, it now appears that inequitable conduct by a patent prosecutor may be inferred due to activities of a patent litigator carried out months or years after patent prosecution has concluded.

In Regeneron, the Federal Circuit affirmed the District Court’s decision that the claims of Regeneron’s U.S. Patent No. 8,502,018 (which Regeneron had asserted against Merus) were unenforceable due to inequitable conduct in the patent’s procurement.  The divided opinion (by Chief Judge Prost joined by Judge Wallach, with a dissent by Judge Newman) has raised questions among many patent prosecutors as to whether the doctrine of inequitable conduct was properly implemented since a key element was based on activities during the litigation itself and was not limited to activities during prosecution of the underlying patent.

Prosecution of the ‘018 Patent

The ‘018 patent relates to using large DNA vectors to target and modify endogenous genes and chromosomal loci in eukaryotic cells.  Claim 1 of the ‘018 patent recites a genetically modified mouse, comprising in its germline human unrearranged variable region gene segments inserted at an endogenous mouse immunoglobulin locus.

Days before the United States Patent and Trademark Office (USPTO) issued its notice of allowance for the application which would become the ‘018 patent, a third-party filed a submission in the parent application of the ‘018 patent describing three references.  It is undisputed that these three references and a fourth reference (together referred to as the “Withheld References”) were known to Regeneron and its counsel during prosecution of the ‘018 patent and that the “Withheld References” were not cited to the USPTO in relation to the ‘018 patent (although all four references were cited in subsequent applications related to the ‘018 patent).  In addition, the Federal Circuit noted in its opinion that Regeneron’s patent prosecution counsel made false representations during prosecution of the ‘018 patent that a transgenic mouse according to the claims had been produced and yielded surprising results, and that the patent counsel relied on this misleading misrepresentation during an in-person interview with the Examiner.  Following the Examiner Interview, the USPTO issued a Notice of Allowance.

Litigation of the ‘018 Patent

After Regeneron filed suit for patent infringement against Merus in the Southern District of New York, Merus filed a counterclaim which raised issues with the prosecution history of the ‘018 patent.  Merus alleged that the ‘018 patent was unenforceable because prior art references that were material to patentability, and which were known to the attorneys involved with the prosecution of the patent application, were not cited to the USPTO despite the attorneys’ duty of disclose under 37 C.F.R. 1.56.  In November 2015, a final judgement was entered which granted Merus’ counterclaim that the ‘018 patent was unenforceable due to procurement of the ‘018 patent through inequitable conduct.  Regeneron appealed the findings of unenforceability as well as the district court’s construction of various claims and its determination of indefiniteness.

In considering the inequitable conduct claim, the Federal Circuit applied the Two-Prong Therasense Standard whereby Merus was required to prove that the Withheld References were material to patentability and that there was specific intent by the patentee to deceive the USPTO.  Both prongs of the test must be established by clear and convincing evidence.

With regard to materiality,  the Federal Circuit upheld the District Court’s adoption of the claim construction proposed by Merus – i.e., that the broadest reasonable interpretation of claim 1 was that it includes mice that can produce humanized, fully human, or reverse chimeric antibodies.  Applying this construction to the patent claims, the Federal Circuit determined that the District Court did not err in finding that the Withheld References were but-for material, i.e., the patent would not have granted but for the non-disclosure because the undisclosed art rendered the granted claims unpatentable.  The Federal Circuit also agreed that the Withheld References were not cumulative to art that was otherwise considered by the Examiner.

With regard to intent to deceive the USPTO during the prosecution of the ‘018 patent, the majority for the Federal Circuit noted that “Regeneron’s behavior in district court was beset with troubling misconduct.”  The majority disagreed with Regeneron’s argument that the district court abused its discretion by drawing an adverse inference that there was inequitable conduct by Regeneron’s patent attorneys during prosecution of the ‘018 patent based on conduct by Regeneron’s different litigation attorneys during the subsequent patent infringement suit.  Instead, the majority affirmed the district court’s conclusion that the litigation conduct raised an adverse inference that satisfied necessary finding of intent to deceive.  The majority specifically penned the following in support of its finding that “Regeneron’s litigation misconduct … obfuscated its prosecution misconduct.”

In particular, Regeneron failed to disclose documents directly related to its prosecuting attorneys’ mental impressions of the Withheld References during prosecution of the ‘018 patent.  The district court drew an adverse inference to sanction this litigation misconduct.  The district court did not punish Regeneron’s litigation misconduct by holding the patent unenforceable.  Only after Merus proved the remaining elements of inequitable conduct did the district court hold the patent unenforceable.  In light of Appellant’s widespread litigation misconduct, including Appellant’s use of sword and shield tactics to protect [prosecution counsel’s] thoughts regarding disclosure of the Withheld References to the PTO during prosecution of the ‘018 patent, we conclude that the district court did not abuse its discretion by drawing an adverse inference of specific intent to deceive the PTO.

Potential Fallout

On its face, the majority’s decision in Regeneron seems to go directly against the Federal Circuit’s own precedent.  In her strongly worded dissent, Judge Newman argued that intent to deceive cannot be inferred but must be proven by clear and convincing evidence.  In discussing the Court’s prior decision in Aptix Corp.,  Judge Newman argued that the prior decision “held that courts may not punish a party’s post prosecution misconduct by declaring the patent unenforceable,” and she cited multiple cases pointing out that while litigation misconduct can bar a litigant, such activity does not render a patent unenforceable.  Judge Newman further argued that intent to deceive is not established by accusation and innuendo but is rather only established by evidence, which must be sufficient to require a finding of deceitful intent in the light of all the circumstances.

As Judge Newman stated, the majority’s decision in Regeneron is troubling on several fronts.  At a minimum, this decision raises questions about both prongs of the Therasense standard.

With regard to materiality, if Regeneron’s proposed claim construction had been adopted, the Withheld References may not have been determined to be “but-for” material references.  The same claim construction standard (broadest reasonable interpretation) is used by the Examiner and the district court.  Several questions, however, remain.  For example, would an Examiner, in the context of ongoing patent prosecution, draw the same conclusion as a district court, in the context of an ongoing litigation proceeding, as to whether a withheld reference is considered to be “but-for” material?  Likewise, are the opinions of an Examiner and a district court interchangeable in determining whether a withheld reference is considered to be “but-for” material?  If not, should a district court opinion on this matter necessarily include the full prosecution history as contextual background?

With regard to intent to deceive, the majority’s decision here is arguably more troubling since a finding of inequitable conduct based on an attorney’s intent to deceive is a serious allegation that is typically very personal in nature since it arises from specific activities by a specific attorney and can have highly detrimental effects on the specific attorney’s reputation and career, in addition to rendering the patent unenforceable.  The majority decision here  thus places patent prosecution attorneys on notice that the conduct of other attorneys in a completely separate proceeding occurring years after the fact can be used as evidence to make a finding of inequitable conduct during earlier patent prosecution.

The above outcome appears to be a very inequitable manner for finding inequitable conduct since intent to deceive is personal to the individual having the duty of disclosure under 37 CFR 1.56.  As such, there does not appear to be a valid basis for inferring intent to deceive from the actions of litigation counsel (even if such actions are sanctionable) who is not under a duty of disclosure to the USPTO and is not even participating in a proceeding before the USPTO.  The Federal Circuit’s decision, however, may be viewed as being specific to a rather narrow set of circumstances where there is a nexus between alleged misconduct of litigation counsel and alleged misconduct of patent prosecution counsel.  For example, the majority here specifically pointed to the failure of the litigation counsel to disclose documents directly related to its prosecuting attorneys’ mental impressions of the Withheld References during prosecution of the ‘018 patent.

It remains to be seen whether the Regeneron decision will have effects reaching beyond the withdrawal of the ‘018 patent.  For example, there is presently no evidence that the USPTO Office of Enrollment and Discipline (OED) has initiated any disciplinary proceedings against the attorneys that handled the prosecution of the ‘018 patent.  To this end, the OED may specifically forego any such proceedings where inequitable conduct is inferred against a patent practitioner based upon the actions of a third party in a proceeding outside of the USPTO.

Finally, the decision in Regeneron raises the question of whether patent prosecution attorneys should be more stringent in documenting decisions to not cite known references to the USPTO.  In the present case, it appears that such “mental impressions” may have been available, and the litigation counsel determined it was not in the best interest of the patentee to submit such information into evidence.  Thus, Regeneron may be viewed by the patent prosecutor as a precautionary tale toward being overly inclusive when considering whether prior art should be cited and thus not provide an opportunity for later activities to give rise to any inference of inequitable conduct.

The Author

Alison McGreary

Alison McGreary is registered patent attorney at Womble Carlyle, in their Raleigh, NC office. Alison helps clients with patent prosecution, primarily focusing on companies in the chemical/bio/pharma industries. Her current matters involve evaluating intellectual property portfolios and devising strategies to protect intellectual property rights. Alison is proficient in Spanish.

For more information or to contact Alison, please visit her Firm Profile Page

Alison McGreary

Ryan Cagle is registered patent attorney at Womble Carlyle, in their Raleigh, NC office. He is a member of the Chemical/Pharmaceutical/Biotechnology Patent Team of Womble Carlyle's Intellectual Property Group. Ryan's practice focuses on assisting clients with developing domestic and international patent portfolios to maximize market protection as well as leveraging the patent rights to further the clients' business strategies. This includes providing advice and assistance in obtaining patents in conventional locales, such as the U.S. and Europe, as well as in emerging markets, including China, India, South America, Southeast Asia, and the Middle East.

For more information or to contact Ryan, please visit his Firm Profile Page.

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Discuss this

There are currently 6 Comments comments. Join the discussion.

  1. Valuationguy October 13, 2017 11:25 am

    All in all….in my opinion…Judges Prost and Wallach didn’t care to FOLLOW patent law if it’s inconvenient to their agenda….they instead MAKE new precedence (by ignoring previous instead)….a happenstance which is occurring more often (especially when either one is joined by Dyk on an appellate panel deciding a PTAB case). These three judges are deciding cases by their politics rather than the evidence before them.

    Judge Newman is entirely correct in her dissent that Prost and Wallach are WAY off the reservation.

  2. Invention Rights October 13, 2017 11:38 am

    If the undisclosed reference was “material to patentability” wouldn’t the patent be invalid as obvious? What is the advantage of proving inequitable conduct? It seems like obviousness would be a much lower burden.

    This is an unfortunate step backward from Therasense.

  3. Anon October 13, 2017 11:46 am

    I would daresay that ever since Prost became Chief Judge of the CAFC, the tendency of panels paying no heed to controlling decisions of prior panels has accelerated.

    This is not to say that it was a problem entirely absent prior to Prost, as goodness knows Rader had his hands full.

    But since Prost, it appears to me that the lack of cohesion is not only worse, it seems to be a “preferred” path.

    Perhaps this is some “internal” decision in an attempt to ward off the abolition of the CAFC itself. There have been calls to eliminate the CAFC and replace it with what once was there before (and in doing so, to ignore the lessons learned from that era). One of the “reasons” that this path is being bandied about is that the “circuit splits” provided a better “percolation” of issues, and since (supposedly) the CAFC does not have such splits, the CAFC lacks this (important) effect.

    By “allowing” panels to be all willy-nilly and NOT adhering to issues already decided by other panels, Prost may be crafting a pseudo-circuit split mechanism.

    Unfortunately, this is not a power of Prost to do, and what this does do is create the perception that the CAFC is simply out of control (and the opposite effect then of strengthening the calls to eliminate the CAFC).

    It is too bad that Judge Newman is so far along in years. If she were Chief Judge, I am sure that she would crack the whip and put the court in order.

  4. JamesPad October 13, 2017 4:43 pm

    “If the undisclosed reference was “material to patentability” wouldn’t the patent be invalid as obvious? What is the advantage of proving inequitable conduct? It seems like obviousness would be a much lower burden.”

    With inequitable conduct, all dependent claims become unenforcable, whereas with obviousness some dependent claims may stand. Also, potentially even children patents can be unenforcable due to inequitable conduct.

  5. Night Writer October 14, 2017 12:35 pm

    The way to think of patents is this. Money for building a product going to market is easy to come by. Money for working on changes to a product that will be in the next generation of product is not as easy, but still easy. Etc. The more attenuated the work is from an actual product the harder it is to get money. Patents change this by allowing speculation on what the next product will be by funding innovation further away from the actual product.

  6. Tim October 15, 2017 4:33 am

    (1). The name Wallach rings a bell? Yes, Judges Mayer and Wallach went against a 12-man jury findings on all 14 counts and tossed the case: Vringo vs IP Internet. As the only qualified Judge Chen, former head of USPTO highly dissented. The case was against AOL, Gannett, Target and GOOGLE. Vringo then took the case to the US Supreme Ct with Attorney David Buies, and the case wasn’t even allowed to see daylight. A corrupt system, indeed. And now I see that Buies had done some work for Harvey Weinstein! This infringement case should never have been “thrown”.

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